In the coming months, the European Parliament and the Member States of the European Union will try to agree on a major reform of the Emissions Trading System (ETS) for 2021-2030.

ETS is the most important instrument we have to keep global warming below 2 degrees Celsius

This system applies to more than 11,000 industrial sites in Europe and is crucial to achieving a significant reduction in emissions. ETS is the most important instrument we have to keep global warming below 2 degrees Celsius - as agreed at the United Nations climate conference in Paris in 2015.

How ETS works

ETS works through the auction and distribution of a fixed amount of tradable allowances (EUAs) to emit the greenhouse gas CO2 into the atmosphere. By putting a cap on emissions and reducing this cap over time, the price for emitting CO2 will increase, encouraging companies to reduce their emission output. Companies will be encouraged to use renewables instead of fossil-based energy sources and to invest in innovative clean production.

Companies will be encouraged to use renewables instead of fossil-based energy sources and to invest in innovative clean production

However, reducing emissions for some industries is easier said than done. Some European companies emit less than any other company in the same sector anywhere in the world. Increasing their energy price would only lead to pushing industrial jobs out of Europe. That is why a limited number of emission allowances are distributed cost-free to vulnerable industry sectors.

However, the incentive to lower their emissions has been lacking, as prices have been low for some years, slowing the transition to renewable energy and making it harder to achieve the EU climate policy goal

ETS is a market-based system, which means it can only work if companies have an economic incentive to lower their emissions. However, this incentive has been lacking, as prices have been low for some years, slowing the transition to renewable energy and making it harder to achieve the EU climate policy goal of reducing greenhouse gas emissions by 40 percent in 2030.

A far-reaching overhaul of the ETS is set to address this challenge.

balancing climate protection and job creation

The outcome of the final negotiations on the reform of ETS between the European Parliament and the Member States will not only have an impact on climate policy and global warming, but it will also be of great importance for the competitive situation of European industry and thus on jobs and growth prospects across Europe.

The European Parliament is careful not to increase the risk that industries that are very energy demanding in their production get tempted to move outside the EU, to countries with less restrictions on pollution

The European Parliament is careful not to increase the risk of 'carbon and investment leakage', i.e. the phenomenon whereby industries and companies that are very energy demanding in their production (like for instance the steel industry) are tempted to move their production facilities or future investments outside the EU, to countries with less restrictions on pollution. If this happens, the EU initiative to combat global warming would backfire and we would lose much-needed jobs.

We want to achieve a balanced outcome on ETS to make sure that climate policy in the EU goes hand-in-hand with the protection and creation of jobs

We, the EPP Group, want to achieve a balanced outcome on ETS to make sure that climate policy in the EU goes hand-in-hand with the protection and creation of jobs. We expect the post-2020 ETS reform to be adopted in the forthcoming plenary session on 15 February and we are looking forward to the Member States in the Council making up their minds in order to make the ETS reform fly.

Other related content